Friday, May 22, 2015

Mr Carney's U-turn on Shadow Banking

Just used the digital
archive of the Financial Times to go through the official statements made by
Mark Carney, as governor of the Bank of England and chair of the Basle-based
Financial Stability Board one of the world's most important central bankers and
financial regulators. In other words, his statements not only have powerful
perfomative consequences for the political willingsness to cut Big Finance to
size but also provides an excellent overview of the mode of thinking among the
dominant players in present day monetary diplomacy. I have put the quotes in
chronological order. What is striking to see is how early his U-turn was. As
early as April 2012 some at least had seen Mr Carney's true colors. It would
take a further 19 months for Mr Carney to come out of his pro-finance closet.
You can draw your own conclusions about what this professes for the post-crisis financial landscape.

Here
are some, chronological ordered statements of Carney on shadow banking, as
quoted in the FT, illustrating the gradual reassessment of shadow banking.

September 26, 2011: ‘Mr Carney said shadow banking was “at least as large
as the regulated sector… [but] often unregulated and/or overseen by authorities
without a systemic focus. This should change.”’

January 15, 2012: ‘Shadow banking must be dragged into the harsh light of
day and both it and global banks must be forced to serve the real economy, one
of the worlds top regulators has warned.

April 9, 2012: ‘Some policymakers, such as Mark Carney, the new head of the
Financial Stability Board – which oversees global regulatory reform – believe
the answer is to embrace the world of “shadow banks”, the loose collection of
non-bank financial groups.’

September 9, 2013: ‘The G20’s aim is to turn shadow banking from a source
of risk to a source of resilience, diversifying sources of financing in a
sustainable way.'

October 24, 2013: ‘Agreeing there was no hiding place for shadow banking,
Mr Carney said he wanted to turn their operations towards “market- based
finance… One of the themes of what I was trying to say was that good markets
have robust infrastructure ... and much of shadow banking doesn’t meet the required
criteria.”’

June 15, 2014: ‘When conducted appropriately, [shadow banking] can be a
valuable alternative to, and provide competition for, banks in funding the real
economy. Diversifying sources of finance makes the provision of the credit that
is essential for growth more plentiful and more resilient.’